Federal Taxes Weekly Alert, 12/06/2007, Volume 53, No. 49

IRS pub highlights changes affecting charitable contributions on 2007 returns

IRS Pub. 526, Charitable Contributions

The IRS has released its Pub. 526, Charitable Contributions, for use in preparing 2007 returns. In providing a detailed explanation of the tax rules governing deductions for charitable contributions, Pub. 526 highlights various tax law changes affecting charitable contributions deductions claimed on 2007 returns. These changes are summarized below.

New recordkeeping requirements for cash contributions.

Under Code Sec. 170(f)(17) and Notice 2006-110, 2006-51 IRB 1127 , a taxpayer may not deduct a cash contribution, regardless of the amount, unless he keeps one of the following:

(1) A bank record that shows the name of the qualified organization, the date of the contribution, and the amount of the contribution. Bank records may include: a cancelled check, a bank or credit union statement, or a credit card statement.

(2) A receipt (or a letter or other written communication) from the qualified organization showing the name of the organization, the date of the contribution, and the amount of the contribution.

(3) For contributions by payroll deduction, (a) a pay stub, Form W-2 or other document furnished by the donor's employer that shows the date and amount of the contribution and (b) a pledge card or other document prepared by or for the qualified organization that shows the name of the organization. Additional records must be kept if a taxpayer makes a payroll contribution and his employer withheld more than $250 from a single paycheck. For details, see Weekly Alert 2 12/07/2006 .

Filing fee for easements on buildings in historic districts.

If a building in a registered historic district is a certified historic structure, a contribution of a qualified real property interest that is an easement or other restriction on the exterior of the building is deductible only if it meets all of the following three conditions:

(1) The restriction preserves the entire exterior of the building (including its front, sides, rear, and height) and prohibits any change to the exterior of the building that is inconsistent with its historical character.

(2) The taxpayer and the organization receiving the contribution enter into a written agreement certifying under penalty of perjury, that the organization (a) is a qualified organization with a purpose of environmental protection, land conservation, open space preservation or historic preservation and (b) has the resources to manage and enforce the restriction and a commitment to do so.

(3) The taxpayer includes with his return: (a) a qualified appraisal, (b) photographs of the building's entire exterior, and (c) a description of all restrictions on development of the building, such as zoning laws and restrictive covenants. ( Code Sec. 170(h)(4)(B) )

If the taxpayer claimed the rehabilitation credit on Form 3468 for the building for any of the 5 years before the year of the contribution, his deduction is reduced under Code Sec. 170(f)(14) .

If the taxpayer claims a deduction of more than $10,000, his deduction will not be allowed unless he pay a $500 filing fee using Form 8283-V, Payment Voucher for Filing Fee Under Section 170(f)(13). ( Code Sec. 170 (f)(13) )

Donor advised funds.

A taxpayer may not deduct a contribution to a donor advised fund after Feb. 13, 2007, if:

... The qualified organization that sponsors the fund is a war veterans' organization, a fraternal society, or a nonprofit cemetery company, or

... he doesn't have an acknowledgment from that sponsoring organization that it has exclusive legal control over the assets contributed.

There are also other circumstances in which a taxpayer may not deduct his contribution to a donor advised fund.

Generally, a donor advised fund is a fund or account in which a donor can, because of being a donor advise the fund how to distribute or invest amounts held in the fund. ( Code Sec. 170(f)(18) , Code Sec. 4966(d)(2) )

Limit on itemized deductions.

For 2007, if a taxpayer's adjusted gross income is more than $156,400 ($78,200

if married filing separately), the taxpayer may have to reduce the amount of certain itemized deductions, including charitable contributions. ( Code Sec. 68 )

References: For charitable contributions, see FTC 2d/FIN K-2800 et seq.; United States Tax Reporter 1704 et seq.; TaxDesk 330,200 et seq.; TG 18950 et seq.

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